Business

Businesses Should Prepare for Recession, Experts Say

President Trump contends that no recession will take place in the near future but economic and business experts aren’t that confident and advise entrepreneurs to be ready when the economy dips.

A recession occurs when there are two successive quarters of economic decline in which trade and industrial activity are reduced along with a fall in the nation’s gross national product. The nation’s most recent recession took place between 2007 and 2009 and economists named it “The Great Recession” because of the bursting of the housing bubble and a global financial crisis that cost millions of Americans their homes and jobs.

Since then, economists such as Roger Ferguson, a former vice chairman of the Federal Reserve Board, have been on the lookout for the next economic downturn. Ferguson, who spoke Nov. 7 at a forum sponsored by the Institute of Politics, Policy and History at the University of the District of Columbia’s David A. Clarke School of Law, said the odds of a recession have increased in recent months.

“No one in 2006 predicted that the Great Recession would take place but it did and caught a lot of people off guard,” Ferguson said. “I will say that the Federal Reserve has lowered interest rates and not raised them recently and that is a good sign for the economy. But it also looks like there will be a period of slow growth for some time.”

Ferguson’s conclusions are slightly more optimistic than an August 2019 survey of 226 economists conducted by the National Association of Business Economics. The survey said 38 percent of the respondents said the U.S. will enter a recession in 2020, while 34 percent said it will take place in 2021 and 14 percent said it will occur in 2022 or after.

Axios, a website specializing in business news, posted an article on Nov. 8 hinting at a possible recession: “U.S. companies are holding off on major purchases and investments, paying down debt and stacking up cash as they look to position for an expected economic downturn in 2020.”

“But in contrast to previous economic cycles when businesses spent recklessly, expecting the good times to last forever, today nearly two-thirds of top executives and business owners say they expect a recession within the next 18 months,” the Axios article said.

Furard Tate, a business coach at D.C.-based Life Asset, a firm designed to help commercial enterprises learn about capital tools, said businesses, especially those that are small and minority-owned, should prepare for the next recession forthwith.

“You need to know your company’s numbers and you need to keep an eye on your business operations,” Tate said. “Business owners need to know what are the costs of their product and what are its profit margins.”

Tate advises entrepreneurs to have a sustainable savings strategy that will help them stay afloat should a recession take place in a few years. The savings strategy should be part of a long-term plan for the business with an emphasis on growth and profitability, he said.

Tate said entrepreneurs shouldn’t hesitate to seek government institutions for assistance when needed and make an active effort to collude with other businesses.

“Business owners should look to collaborate and share resources,” Tate said. “For example, some businesses can share a truck for delivery or restaurants can lease their kitchens to other businesses when it is not being utilized. When businesses work together, profit margins tend to be better.”

Ferguson said businesses need to pay attention to the financial markets when the economy slows.

“They should prepare to sustain their businesses and be able to weather whatever happens,” he said. “There is no magic answer for a recession so expect the unexpected.”

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